The ventral midbrain (vMb) is organized into distinct anatomical domains and contains cohorts of functionally distinct subtypes of midbrain dopamine (mDA) neurons that are critical for proper brain function. mDA neurons are diverse in their physiological function, molecular identities, spatial and anatomical distribution, and participate in specific neural circuits. However, it remained unclear how these subtypes are established. We have investigated how the diverse mDA neurons are specified during embryonic development with the focus in Shh signaling and using mouse as a model system. We hypothesized that genetic history and timing of gene expression within mDA neuron progenitors regulate mDA neuron subtype identity. We tested this hypothesis using Genetic Inducible Fate Mapping to differentially mark the Shh and Gli1 lineages at varying embryonic stages and demonstrated how timing and gene expression result in progenitor contribution to distinct mDA neuron domains. Importantly, we uncovered that dynamic changes in Shh and Gli1 expression in the vMb primordia delineated their spatial contribution to vMb. First, both lineages contributed to the medial domain. Subsequently, the Gli1 lineage exclusively contributed to the lateral vMb while the Shh lineage expanded more broadly across the vMb. Our findings show that the early Shh and Gli1 lineages specify mDA neurons of the substantia nigra pars compacta (SNc) while the late Shh and Gli1 lineages maintain their progenitor state longer in the posterior vMb to extend the production of mDA neurons in the ventral tegmental area (VTA). Together, our study demonstrates for the first time that the timing of gene expression along with the genetic lineage (Shh or Gli1) within the neural progenitors segregate mDA neurons into distinct mDA neuron subtypes. In addition, we found that the duration of Shh signaling determines mDA neuron subtypes. We noticed that there is hardly any overlap in Shh and Gli1 expression in developing ventral mesencephalon. We demonstrated that the mDA neuron progenitors sequentially respond to Shh signaling, induce Shh expression, and become refractory to Shh signaling. The biological significance of such tight control of dynamic Shh responsiveness was tested using ShhCre mice to knockdown Shh signaling in Shh-expressing cells. We revealed that the duration of local Shh signaling controls the proliferation and differentiation of the mDA neuron progenitors. Furthermore, we identified that the shortening of Shh responsiveness in Shh expressing progenitors bias them toward the mDA neurons of the VTA at the expense of SNc. Our findings provide a novel mechanism of altering mDA neuron subtypes through the manipulation of Shh signal duration.